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The Hill: Chairman Graves Presses IRS Over Small Business Letters

The chairman of the House Small Business Committee is pressing the IRS over letters the agency is sending that he fears companies could find threatening.

The IRS, Rep. Sam Graves (R-Mo.) says, is currently telling small business owners that they might have underreported their income, based on the reports the agency receives about a company’s debit and credit card receipts.

In a letter to the agency, Graves suggests that the letters could intimidate businessmen and women, even though his staff was assured that the outreach was just to gather information on a company’s income.

“The letter implies that this is a serious matter that could lead to assessments of additional tax, penalties and interest,” Graves wrote to Faris Fink, the IRS’s commissioner for small businesses and the self-employed.

“A small business that receives one of these notices is very likely to feel alarmed and threatened,” the Missouri Republican later added.

The letters from the IRS are growing out of a provision in a 2008 housing bill that gave the agency more access to companies’ debit card receipts.

It also comes as the agency is still trying to recover – and still under investigation – for its treatment of Tea Party groups seeking tax-exempt status.

The IRS’s spending on conferences has come under fire as well, with Fink testifying before Congress in June about his role as Spock in a “Star Trek” film parody that was shown at a $4.1 million event in California.

The agency declined to comment on the reporting letters to small businesses.

Both Graves and Roger Harris of Padgett Business Services suggested it was reasonable for the IRS to reach out the the businesses about their receipts.

But Harris, whose group helps small businesses with tax preparations, said that businesses had been assured that they wouldn’t need to keep any extra records to satisfy the IRS’s information requests, a claim he said was in some doubt now.

Graves and Harris also said that businesses were being told that their receipts weren’t in line with where they should be – but weren’t told how much the receipts were off, and given 30 days to respond without given any more information on the IRS’s standards.

“One tax advisor to small businesses said it will be like trying to prove a negative,” Graves said.

Or as Harris put it: “It’s like telling me I’m overweight for my height, but not telling me what the average weight is.”

Harris added that there could be good reason – with businesses offering cash back on debit cards, or the ability for customers to add a tip on their card – for a company’s receipts to seem elevated.

Still, he said that – business owners don’t yet know how the IRS will respond to their justifications – it remains to be seen if the agency’s letters will prove all that burdensome.

“I think there’s some legitimate concern from business owners, but we don’t know what happens next,” Roger said.

In his letter, Graves asks the IRS to modify how it reaches out to the business owners, and for a response by Sept. 3.